Liddell On Track For State Ownership

Liddell On Track For State Ownership

by David Archibald

4 May 2018

Back in December I made the argument for keeping the Liddell power station going; and if necessary doing that by expropriation by the State. AGL’s economic vandalism in wanting to destroy Liddell in 2022 was readily apparent.

Now events are transpiring which will see that happen without any outlay by the State. Alinta Energy, owned by a Chinese man living in China and thus effectively a Chinese state-owned-enterprise, has bid $1.2 billion for something that AGL had assured us was clapped out and worthless. For those who prefer to be informed by cartoon imagery:

An energy industry participant who is also a patriot provided the following interpretation of events for us:

The Liddell story is caused by government intervention in (distortion of) the market. We have renewable policy (the Federal Government’s has been around a long time and in recent years more extreme case at state level like South Australia) that incentivises the private sector strongly to close down coal plant. I don’t blame AGL as it’s just responding to ‘public policy’. If we don’t like it we need to vote out the crazy pollies like people just did in South Australia. The problem at the Federal level is that both sides want to retain the 18-year old mandatory renewable energy target scheme (MRET). So we are stuck with high cost policy.

Alinta is looking at grabbing the coal plant for a song because it can see it could milk money from the artificially high-priced wholesale energy market in the eastern states. This high price is government policy, driven by the fact that the more renewables you build the more unreliable the system. Wholesale market summer prices go through the roof, until you so over-build that redundancy starts to help lower unreliability, by which time you would have had to invest big time in generation. It’s an in-built uncompetitive system. If you could buy a reliable dispatchable generator like a coal plant, and ignore the name calling from the far left for now, you’d be making big money for a few years and then close it. Alinta would do this because it doesn’t have a big renewables portfolio like AGL and Origin.

Liddell power station

AGL can make money from Liddell but it also engages in a game of developing renewable projects then flogging them off to low-capital-cost investors like pension funds (or Chinese SOEs) to collect a big development fee by giving these buyers a power purchase agreement. Low cost investors love investment-grade PPA counterparties to show in their annual reports, so everyone is happy — except Australian consumers. AGL doesn’t want to cannibalise its own lucrative renewable business.

Australia has the luxury to turn its back on unconventional gas resources, because we are still living off natural gas and coal exports. We don’t think manufacturing. This is OK in a benign international trade order based on the principle of comparative advantage in a free market policed by the US Navy. But we are in a pre-war stage now, so we can’t continue to treat China as the guaranteed supplier of all things manufactured to the West. It’s like giving Germany and Japan the keys to our industrial and commercial plants in the years leading up to 1940. I am digressing a bit here as I want to contrast our current energy policy based on a world that has gone with the world that is unfolding. We must focus on installing a national energy reserve scheme in which we could access low cost energy on short notice because our survival will depend on it.

The US has done the correct thing by keeping its energy cost down while rebuilding manufacturing. The American people suffered a big and lengthy downturn with the GFC. We had the mining boom and that is doing damage by giving us a false sense of complacency.

Instead of Liddell being blown up by AGL, the Liddell story has the potential to blow up the whole global warming/renewables/power supply story. The public were told one story by AGL regarding Liddell. The $1.2 billion bid proves the whole thing is a scam. AGL was happy to destroy an asset with a minimum value of $1.2 billion because it expected to make far more money flogging power from the 750 MW of natural gas-fuelled diesel gen-sets it intends to install. This is a big rip in the fabric keeping the whole story together.

So how does Liddell end up as a state-owned asset again? When China attacks, and Australian servicemen start dying, all Chinese assets in Australia will be expropriated. So Liddell will be a Federal Government asset rather than a NSW-owned one.